FTSE 250 stock Pets At Home just soared 15%! I think there could be more to come

Shares in FTSE 250 (INDEXFTSE:MCX) member Pets At Home plc (LON:PETS) soar in early trading. Paul Summers thinks the shares could be a great long-term hold.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in pet care business Pet At Home (LSE: PETS) shot to the top of the FTSE 250 leaderboard this morning as the company reported its latest set of quarterly numbers to the market. Here’s why the stock is soaring 15% higher.  

Pets bounces back

Total and like-for-like revenue fell 1% and 0.7% respectively over the period from 27 March to 16 July. However, this doesn’t tell the whole story.

In the first eight weeks, like-for-like revenue growth tumbled 13.5%, only to bounce back by 12% in the second eight weeks. In other words, Pets was hit hard, had done well to recover, and was “emerging as a stronger business“.

Broken down, retail like-for-like revenue increased 0.4% on decent sales of merchandise. This helped cushion the blow of needing to shut down its grooming salons and the sale of pets during the period. During the quarter, Pets also trialled new initiatives, including a “Call and Deliver-to-Car” service and home delivery of medication.

Unsurprisingly, omnichannel revenues soared 71% on record order volumes, prompting Pets to announce that it had signed a conditional lease agreement for the construction of a new storage and distribution facility; the idea being that it will then be able to manage its online orders and retail stores from one site.

As if this wasn’t enough good news, Pets at Home also reported on “heightened demand for pet ownership“, evidenced by the growth in members of its VIP service (+20.3%) over the period. The number of subscription customers also rose 18.1% in the quarter to just over 900,000. 

The only slight negative from today was that like-for-like revenue from its veterinary business fell (by 9.3%) as restrictions on procedures came into force. Nothing revelatory there.  

So, more gains to come?

Not necessarily, at least in the near-term. While recent momentum had been ahead of expectations, even Pets said that it would be wrong to assume that trading would continue like this for the rest of the year.

All perfectly prudent, in my view. After all, we have no idea how long social distancing restrictions will go on for. There’s also the possibility of more local lockdowns and even, worst-case scenario, one that extends to the whole country. 

While many rushed to buy a puppy for lockdown, there’s also no certainty that the rise in pet ownership will be sustained. Indeed, a jump in unemployment may mean that buying a furry friend will become less of a priority for many would-be owners.

That said, the fact that Pets was able to use its designation as an ‘essential’ retailer to stay open during lockdown allowed it to gain “valuable insight into consumer behaviour and preferences“. This should serve it well if we’re all sent back to our homes again. It should also make it easier (though not easy) for the company to estimate costs, at least compared to other businesses. 

In the meantime, Pets looks pretty sound financially. It ended the quarter with a total of £267m in cash and undrawn banking facilities.

Solid buy

All told, I think today’s news and the fact that it’s got its paws in so many non-discretionary spending pies underline the solid case for investing in Pets At Home. 

A forecast price-to-earnings ratio of 24 before this morning looks high. However, a bounce-back in earnings in FY22 should bring the valuation back down. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Here’s how I’d target £496k in FTSE 100 shares and £19k of passive income in a Stocks & Shares ISA

I invest as much surplus cash as I can at the end of the month in my Stocks and Shares…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Is Rolls-Royce’s share price an irresistible bargain?

Is Rolls-Royce's share price the FTSE 100's greatest bargain today? Royston Wild explains why he would -- and wouldn't --…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Is the Vodafone share price a wonderful bargain or a horrible value trap?

As the Vodafone share price continues to fall, is it now a stock to buy with a view to a…

Read more »

Hand of a mature man opening a safety deposit box.
Investing Articles

I’d buy 95,239 shares of this banking stock to generate £200 of monthly passive income

Muhammad Cheema takes a look at how Lloyds shares, with a dividend yield of 5.9%, can generate a healthy monthly…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Can FY results give the Antofagasta share price a long-term boost?

The Antofagasta share price has had a good five years. Now the company says it's set to enter a new…

Read more »

Person holding magnifying glass over important document, reading the small print
Dividend Shares

Can I make sustainable passive income from share buybacks?

Jon Smith notes the rise in share buybacks from FTSE 100 companies, but flags up why they aren't great for…

Read more »

Front view of a mixed-race couple walking past a shop window and looking in.
Investing Articles

After the Currys share price rockets, here are more potential UK takeover targets!

The Currys share price has surged 39% higher in response to news of a takeover bid. Which UK stocks could…

Read more »

Investing Articles

Down 25%, where will the British American Tobacco share price go next?

The British American Tobacco share price has taken a hit. But this Fool isn't deterred. He think's now could be…

Read more »